How to fuel your Leadership Pipeline from within – and why it makes financial sense

In a number of our previous features (The Real Cost of Inadequate Leadership and The Leadership Deficit: How Healthy is your Leadership Pipeline?) we looked at some of the financial costs of inadequate leadership, and the problems industries currently face as a result of failing to strategically plan for future leadership requirements.

In the latest in our leadership series we focus on future-proofing your leadership capability from within, expand on some of the financial advantages to promoting internally, and suggest more ways to develop your high potential future leaders, making sure that your company doesn’t get caught out when the status quo is challenged.

With many businesses having periodically pulled back on strategic investment into leadership development in the face of more pressing business and economic challenges, it is now a well-known fact that many are feeling the results of insufficient depth of leadership capability within their organisations.

The ability to survive and thrive relies on at least effective, if not inspirational, leadership.

While it is admittedly difficult to focus on longer-term strategic development when fire-fighting immediate challenges such as budget cuts and project delivery, businesses will certainly have leadership needs in the future. Failing to plan for these is gambling with that future.

A compelling case for Growing Your Own

The need to appoint into a leadership role often arises suddenly. Unanticipated departures, illness or expansion can all lead to an urgent need to recruit leaders into key positions.

Without a pipeline of future leaders who are both keen and ready to step up the company may well have no other option than to look outside, and while there are many skilled people who are keen to come in, certain industries, including the construction industry, simply cannot find enough people of the right calibre.

Where they do exist, research by the University of Pennsylvania ‘Paying More to Get Less’ 1, which took place inside US Investment Banks, found some compelling statistics that support the case for developing your own leadership capability internally. In the study it was found that:

External recruits tend to be paid 18-20% more than internal recruits, but demonstrate lower marks in performance for two years.

External recruits are 61% more likely to be laid off or fired, and 21% are more likely to leave their job by choice.

External recruits tend to be more highly educated but do not have the firm-specific skills that enable them to perform highly from the start.

Our own clients in the UK construction industry report that they pay between 10% and 40% more to external recruits, and that it takes anything from six months onwards to bring them up to speed.

In addition, recruitment companies typically charge up to 30% commission to fill senior leadership roles, though it is possible to pay as much as 50% commission to companies supplying hard-to-fill roles with 6-figure salaries. Thus, when it comes to external recruiting the business really is paying more to get less.

It’s not just the new recruit who under-performs. The productivity of those reliant on working with them – and those unofficially called upon to induct them – is also affected.

What should you do?

Questions to be asked of CEOs and MDs centre on the leadership requirements of the future, measured against the capability presently existing within the business.

1) Consider 2-3-5 years in advance what skills will be required to pragmatically support future business direction.

A business’ needs change over time. Where the company sits in its evolutionary cycle – growth, consolidation, recovery – determines how it will need to be led in the short and mid term. This may be different to what has been required up to this point.

Make the time to create forward-looking job profiles that detail the specific skills, behaviours and experience that will be needed to take the business forward.

2) Take a leadership inventory

Against the profiles, carefully consider what capability – who – you have in the business who has the skills and aspirations to fill the vacancies. Identify the gaps, and the timescales by which they need to be filled.

3) Identify internal potential

Identify possible candidates and systematically measure them up against the job profile. Identify high-potential personnel who are also keen. Be clear where the skills gaps are for each individual, but also within the team as a collective: can another team member effectively fill this gap?

This will generate a clear requirement for Leadership training – either collectively or (often) individually – that is in line with future business strategy.

4) Is everyone involved in the sourcing and delivery of training ‘on board’ with the strategic intent?

A relatively small investment of time to ensure alignment between all departments involved with sourcing and training staff will avoid off-target (and therefore costly) training, mentoring and recruitment.

Bring in true L&D Business Partners at key stages of the identification process, who are aligned with – and actively working to support – the strategic direction of the business.

This ensures that whatever time or money you can afford to invest reaps maximum benefit.

5) Most people are not magicians

It really is worth investing in and creating opportunities for people who demonstrate both the potential and the will to progress. Your most talented, ambitious people will go elsewhere if you don’t, taking their business-specific knowledge with them.

People can only know what they know. Even where there is considerable inherent capability they will need to learn new skills at key transitional periods in the Leadership path. And Charan, Drotter et al in their 2000 publication ‘The Leadership Pipeline: How to Build the Leadership-Powered Company’ 2 demonstrate that a failure to acquire key transitional skills in more junior roles will impact Leaders’ ability to perform in important areas as senior managers.

Delegation, emotional fortitude, needing to be liked, how to coach others can all be performance stumbling blocks later on. Whether these skills are taught internally or externally, it is worth investing the time into if you want to build a strong leadership pipeline for the future.

A small amount of (relatively inexpensive) personal coaching goes a long way to clarifying directions, identifying and remedying skills gaps, and generating goodwill.

6) Use your training budget pragmatically

Maximum benefit from external (and internal) training is not usually achieved with generic programmes that focus heavily on theory. While many programmes are high profile, highly structured, consistent and ‘dependable’, with strong theoretical contact, they frequently do not include a sufficiently personalised approach to skills development.

Relying on theory to do your company’s thinking for you is a risky strategy: only the people within the business know what that theory needs to look like in real terms.

Whatever training you invest in should have a strong emphasis on the application of its theory, rigorously pushing each individual on their personal performance challenges and what specific steps they will take to resolve them.

This guarantees that the training will be relevant, and, faced with a real opportunity to resolve real challenges, each person stands to genuinely benefit by retaining the learning.

Leadership skills training should incorporate theory only in as much as it creates deeper understanding, improves working relationships and creates a common language for change.

“We have always managed without strategic development before”: some words of caution

The leadership skills within businesses are constantly scrutinised and observed, more than most people think. Many individuals emulate those leadership traits evident by more senior people – whether or not those traits in themselves are aligned with future business strategy. In the absence of strategic development, are your current leaders exhibiting the behaviours that you are wanting in your business?

At the highest level, are CEOs likely to recruit into their own mould, or, worse still, groom a successor who has lesser ability in order to protect their own legacy?

In Summary

Be crystal clear about what your future leadership needs are likely to be and where the shortfall is to meet them.

Rigorously identify high-potential internal candidates and invest in them. The research (1) shows that recruiting internally delivers more and costs substantially less.

Choose development programmes that are applied pragmatically and are output-focused, and use different methods to appeal to varying natural learning styles.

To those who still say they can not afford the money or time for strategic development, we say, when faced with the very real cost of getting this one wrong, can your business really afford not to?